When the government comes knocking: Have your ‘house’ in order before an employment sweep

As many California Restaurant Association members are aware, various state and federal government agencies have been cracking down on illegal employer practices ranging from the failure to pay proper wages to hiring illegal workers to failing to maintain workers’ compensation insurance. In fact, the restaurant industry is actually one of the primary targets of government enforcement sweeps. What many restaurant operators may not be aware of is the government’s almost absolute power to audit and inspect a business for any of the aforementioned compliance issues at any time.

For example, the California Labor Code specifically authorizes the state’s labor commissioner and agents to investigate wage-and-hour violations and ensure employers are maintaining valid workers’ compensation insurance. In fact, these agents can show up at a business at just about any time and demand to see time records, proof of workers’ compensation insurance and other documents showing proof of compliance with the labor laws. If operators fails to cooperate, they could be charged with a misdemeanor and be the target of civil proceedings for monetary penalties and other unpleasantries such as injunctions seeking to shut you down. Moreover, dealing with an audit or a raid can be time-consuming and very costly, especially if an attorney must be retained for help.

Government agencies also coordinate on special task forces and organize sweeps designed to investigate and ensure compliance in a number of important employment-related areas. For example, the Labor Commissioner might show up with additional agents from the Employment Development Department, the U.S. Department of Homeland Security and the U.S. Customs and Immigration Control Enforcement team to ensure the employer has workers’ comp insurance, is properly withholding payroll taxes, is not paying employees under the table, and is not employing undocumented workers.

Given all the labor laws that restaurants and other employers must comply with, the question is often asked: What do I do if I get audited or raided? 

If your business is actually raided – i.e., the government shows up without notice and begins “taking names” – chances are it’s going to be too late to do anything. In that instance, operators should simply cooperate as best they can and call their employment attorney for advice immediately. Because there may be possible criminal charges involved, refrain from saying too much to any agents until consulting with counsel. For example, while an operator may be obligated to produce certain documents, such as I-9 forms or proof of workers’ comp insurance, everyone has the constitutional right against self-incrimination. Accordingly, call counsel for advice as soon as possible. Counsel may be able to provide guidance on how to handle the situation in a way that will avoid further complications or liability.

An operator who receives notice that their business is being audited – for example, the Department of Homeland Security wants to review I-9 forms, which is a mandatory form all employees must complete before starting work – call your attorney for guidance on how to prepare for the audit. Often times, if you’re not prepared at the time you receive notice of the audit, you may be able to get into compliance by the time the audit is actually conducted. In short, if you get notice of an audit, act quickly.

 

However, the best way to deal with audits or raids is to be prepared in the first place. Spend a few moments to make sure your employment-compliance “house” is in order:

           

  • DO make sure you have workers’ compensation insurance. This is not optional. It is a must.
  • DO ensure that you have I-9 forms for all employees and that ALL sections of the forms are completed. You may have to conduct a self-audit. Also, keep in mind that photocopying the required documents is no substitute for filling out the form itself. Also, it’s a good idea to keep the I-9 forms in a separate binder instead of in the personnel files. If the forms are kept in personnel files, the Department of Homeland Security is entitled to review the files, which could lead to more trouble. If the I-9 forms are kept in their own binder, they can be turned over separately, which is much easier.
  • DO keep accurate time records and payroll records. Make sure employees are punching in-and-out for the day, and that the time records indicate that any legally-required meal periods have been taken. If you don’t do this and you are audited for overtime, you’re probably going to get into trouble.
  • DO make sure you have all the required employment law notices and postings posted where employees are likely to see them. Break rooms are ideal. The CRA can advise you as to what notices and postings are required.
  • DON’T employ or pay employees under the table. This could lead to a heap of trouble from the Labor Commissioner and other state and federal government agencies.
  • DON’T knowingly hire undocumented workers.
  • DON’T make employees work off the clock.
  • DON’T ignore the meal and rest periods required by law. Remember, employees have a right to an unpaid 30-minute meal period for every five hours of work. Also, employees are entitled to a paid 10-minute rest period for every four hours of work. This is a growing area of litigation and audits.

The lesson here is preparation. If you follow these recommendations, you’ll be in good shape if the government comes knocking. Also, take some time to do a self-audit on your employment law compliance and consult with counsel now – before it’s too late.

This report was reviewed for legal accuracy and updated in 2012 by Fine, Boggs & Perkins LLP.